By Soyoung Kim

SEOUL (Reuters) -South Korea's government and the central bank should pay greater attention to addressing any financial instability, President Yoon Suk-yeol told Reuters, as the money market grapples with a steep selloff amid rising interest rates and a property slump.

"There are increasing opinions that inflation has passed its peak and it's time to slow down the speed and reduce the breadth of the rate hikes. However we must still continue to closely monitor any possible financial instability," Yoon said during a broader interview in his office on Monday, when asked if it is time for the Bank of Korea to slow monetary tightening.

Yoon's comments come as the BOK last week signalled that it could be nearing the end of an unprecedented streak of policy tightening in Asia’s fourth-largest economy to curb inflation.

Yoon spoke hours after the finance ministry and the BOK announced a second round of support measures to ease strains in its short-term money market, as yields on three-month commercial paper reached a fresh 13-year high on Monday.

South Korea's money market, especially at the short-end of the bill curve, has experienced one of the worst routs in Asia as investors sold-off in the wake of rising interest rates and a broader property market downturn.

The nation's households are among the world's most-indebted, and some of them are struggling to meet their repayment schedule as mortgage rates hit a decade-high in the mid-4% levels, a recent BOK survey showed.

South Korea's household debt-to-GDP ratio stood at 102.2% in the second quarter, the highest level among 35 major economies tracked by the Institute of International Finance.

The BOK's monetary policy committee unanimously agreed to hike interest rates by a quarter-percentage point to 3.25% at its Nov. 24 review - taking the benchmark rate to its highest since 2012. It was a smaller tightening after a half-percentage point increase in October, reflecting a slowdown in inflation to 5.7% in the same month from a near 24-year high reached in July.

Asked whether the risk of a mild recession next year could prompt extra stimulus spending, Yoon said the plan is to stick to the current 639 trillion won ($481.7 billion) budget for 2023 and focus on tightening expenditure.

"We will make our budget as it is until next year," Yoon said, adding that the government will seek to pursue effective fiscal policy by cutting unnecessary expenditure and prioritising spending in areas where it is required.

Yoon's first budget proposal for 2023 announced in August showed the country will cut spending for the first time in 13 years, pivoting away from pandemic-era stimulus to help the BOK temper inflationary pressures.